Chile loan guarantees seen growing in double digits

Chilean loan guarantee fund Fogape expects a significant increase this year in the number of issued guarantees.

State-owned Fogape holds quarterly loan guarantee tenders for banks and non-bank financial institutions as a way to improve access to financing for micro and small enterprises, and small exporters.

The number guarantees will grow by at least 10% and probably 15-20% this year, Fogape’s deputy manager Alessandro Bozzo told BNamericas.

Fogape issued 44,559 guarantees last year, which represented an increase of 17% from 2017. It also marked a return to growth after several years of declines.

The guarantees issued in 2018 backed loans worth 23.2mn UF (inflation linked units, or about US$930mn).

“In the first quarter of this year we issued approximately 1,000 guarantees more per month than we did in 2017,” said Bozzo.

Large and small banks have all shown strong demand for guarantees so far this year, which will see the consolidation of the recovery that began in 2018, he said.

The Chilean economy improved its performance in 2018 after several years of weak growth and the financial system responded by increasing the supply of loans. Bozzo also attributes the increased interest in guarantees to a digital system that Fogape will soon launch.

Called Webservice Fogape, the new system will begin operating with one private sector bank this month or in June, and three or four additional banks are likely join later this year as well as some reciprocal guarantors, said Bozzo.

“Banks have been lending online to consumers for some years but online lending to small businesses is only beginning now,” he said.

The digital system will reduce costs for all parties and will be especially beneficial for owners of micro and small enterprises who will be able to obtain Fogape-backed loans without having to go to a bank branch. "Time is really a scarce resource for small business owners and now they will be able to make an application for a Fogape-backed loan late at night or during the weekend,” Bozzo said.

In 2020, more banks and non-bank financial institutions are expected to start using Webservice Fogape, he added.

Fogape is administered by state-owned lender BancoEstado, which is also a user of the guarantees.

Bozzo has worked as an advisor to the World Bank when loan guarantee systems have been created in countries in South America, Central America and Africa.